IGST exemption: AAR ruling may set precedent for foreign client services
New Delhi, May 16, 2024
Experts say the ruling may have ramifications for other industries which provide services to foreign clients too, particularly in the IT, consulting, marketing, and recruitment sectors
Services provided by Indian information technology, marketing, and consulting, among other companies, to foreign clients may not always draw Integrated Goods and Services Tax (IGST), if a ruling by the Telangana Authority for Advance Rulings (AAR) sets a precedent.
The AAR gave its ruling on a specific case of referral services provided by the Hyderabad-based Centre for International Admission and Visas (CIAV) to foreign universities and colleges for the admission of Indian students. The company does not have any binding agreement with universities, colleges, or students for guaranteed admissions in particular places.
The AAR held that these services are not intermediary in nature and rather are exports. This meant that these would not draw Integrated GST which intermediary services would have attracted, explained Sandeep Sehgal, partner at tax and consulting firm AKM Global.
Experts say the ruling may have ramifications for other industries which provide services to foreign clients too, particularly in the IT, consulting, marketing, and recruitment sectors.
In the particular case, the company gets referral income or commission in foreign currencies from universities and colleges based on successful admissions.
The AAR holds that the scope of ‘intermediary’ does not include a company which supplies services on its own account. In the present case, the company is under a principal-to-principal contractual relationship with the foreign universities and colleges and it is providing its independent and main service of marketing and referral to them.
Besides, the company does not influence the selection process of prospective students to a contracted university, it held.
Sehgal said the ruling sets a significant precedent for the classification of services under GST.
The decision paves the way for a broader interpretation that could significantly impact various service sectors engaging with foreign clients, he said.
It clarified that services provided to foreign clients on a principal-to-principal basis such as consulting, IT, marketing, and recruitment should not always be deemed as intermediary services, Sehgal said.
[The Business Standard]
